Chinese Central Bank Won’t Engage in Monetary “Irrigation” Or Leave Market Short of Cash: PBOC Q3 Monetary Execution Report

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The People’s Bank of China (PBOC) has flagged the maintenance of moderate monetary policy settings following the Chinese economy’s gradual recovery from the impacts of the COVID-19 pandemic.

In the “2020 Third Quarter Monetary Policy Execution Report” (2020年第三季度中国货币政策执行报告) released on 26 November, PBOC said that its “main policy themes for the next phase” would include “effectively performing cross-cyclical policy design, expediting overall quantitive balance of the economy, structural optimisation and internal and external balance.”

The report said that “stable monetary policy would become more flexible” while also highlighting “targeted guidance.” PBOC will “not allow the market to be short of money, and also firmly refrain from engaging in ‘flood-style irrigation,'” in order to prevent the market from “overflowing with money.”

PBOC said that it would “improve monetary supply adjustment mechanisms, and make comprehensive use of multiple monetary policy instruments to maintain rationally ample liquidity, including medium-term lending facilities, open market operations, and re-loans and re-discounts.”

PBOC will also “effectively control the overall sluice gates of the money supply, and maintain growth in the broad money supply volume and total social financing that basically matches growth in nominal GDP that reflects potential output.”

With regard to debt markets, the report calls for “actively improving the establishment of bond market regulatory systems, expediting unification of information disclosures for corporate credit category bonds, improving mechanisms for the prevention and disposal of bond default risk, strengthening unification of the regulation of financial market infrastructure and achieving connection of bond market infrastructure.”

Other areas of emphasis for the latest monetary policy execution report included:

  • Moving towards more market-based mechanisms for the formation of renminbi exchange rates.
  • Firmly maintaining the stance that houses are to be used for occupation and not speculation.
  • Firmly refraining from the use of real estate as a short-term economic stimulus measure.
  • Maintaining stable land prices, stable housing prices and stable expectations.
  • Maintaining the continuity, unanimity and stability of real estate financial policy.
  • Effectively implementing a real estate finance prudential regulatory system.

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